The beacon of new forces in car manufacturing, the light is gradually dimming.
After the US stock market on April 19, Eastern time, Tesla announced its financial results for the first quarter of fiscal 2023. Unsurprisingly, this is a report card that is half sea water and half flame: on one side, sales have reached new highs, and on the other side, there are plummeting profits and free cash flow that has fallen to a new low in nearly two years. And all these changes in indicators point to the same behind-the-scenes "culprit": price reduction.
As early as the beginning of Tesla's price reduction tide, the outside world was full of expectations for this earnings report. No one doubts that the price cuts will boost sales, but analysts want to know how much of a negative impact the large-scale price cuts will have on Tesla, which is also the best window to test Tesla's cash flow reserves and profitability.
It turns out that the outside world is not unjustified, and the impact of price cuts on profits has exceeded market expectations. After the earnings report, Tesla's stock price fell in the short term, falling more than 6% after hours, and the attitude of investors is self-evident.
Xu received a signal of dissatisfaction in the market, and Musk tried to show a positive attitude during the earnings call, divert attention from the outside world, and once again explained Tesla's price reduction strategy. In addition, Musk has spent a lot of time introducing business developments such as Cybertruck, trying to paint a new grand picture beyond electric vehicles.
There are many people who question Musk's pie, but it is undeniable that the above business has made some progress. This is an opportunity to really reconstruct Tesla: How long will the price cut last? Outside of cars, where is Tesla's second growth line?
(Image via Pixabay)
Sales soared, profits plummeted, Tesla's sorrow and joy were twofold
As mentioned at the beginning of the article, Tesla handed over a mixed financial report. That being the case, we might as well break it down from the two levels of highlights and shortcomings.
Let's talk about the highlights, there are two main ones: revenue continues to grow, and car sales reach a new high.
In the first quarter, Tesla achieved revenue of $23.329 billion, a year-on-year increase of 24.4%, basically in line with market expectations, but a large decline from the year-on-year growth rate of 80.5% in the same period last year. From the perspective of the growth curve, Tesla's year-on-year revenue growth rate has declined for three consecutive quarters, and price cuts have not helped.
Among them, automotive revenue was US$19.96 billion, an increase of 18% year-on-year, but fell by about 6% from the fourth quarter of last year. Vehicle sales revenue was $19.4 billion, up from $16.2 billion in the same period last year and down from $20.7 billion in the fourth quarter of last year. As Tesla's number one cash cow, the car sales business has an unshakable status. Price reduction promotions are the main factors driving revenue growth.
The effect of price reduction is more vividly reflected in sales. Data show that Tesla's total car sales in the first quarter were 423,000 units, a record and a year-on-year increase of 36%. But that number isn't Tesla's ultimate goal: the company's top management has set an annual sales target of 1.8 million vehicles, and the average sales in the next three quarters must be at least 450,000-500,000 vehicles.
However, Tesla's problems are also obvious: profits have fallen sharply, and it is a comprehensive decline in net profit, overall gross margin, gross profit margin of automobile sales and other data.
Data show that Tesla's first-quarter net profit was $2.513 billion, down 24% year-on-year, and earnings per share were only 73 cents, down 23% year-on-year - this is Tesla's EPS record decline again in nine quarters. If you turn to the data of the same period last year, this comparison is even more tragic: in the first quarter of 2022, Tesla's net profit attributable to the parent reached $3.313 billion, a year-on-year increase of 656.39%.
Under the impact of continuous price cuts, Tesla's proud gross profit margin has not returned to its former glory. According to the financial report, Tesla's overall gross profit margin in the first quarter was 19.3%, far lower than the 29.1% in the same period last year and 23.8% in the previous quarter, a decrease of more than 20%; The gross profit margin of bicycle sales was only 18.3%, less than the 20% expected by the market, and more than 10 percentage points lower than the 29.7% in the same period last year.
Not only has it regressed significantly compared with itself, but it has no advantage over other peers: although Li Auto had a net loss of 2 billion yuan in the last fiscal year, its gross profit margin reached 19.4%; The annual sales of new energy vehicles countered Tesla's BYD, and the gross profit margin of automobile sales reached 20.39%.
In general, when the cost of bicycles is basically stable, the negative effect of price reduction is becoming increasingly prominent. Although the car is selling more and more, the price of the bicycle and the gross profit are deteriorating. Looking forward to the future market, Tesla also has to face a series of uncontrollable objective factors: global subsidies decline, high raw material prices, and increasingly difficult to control costs.
Beyond costs and profits, Tesla's pressure comes from another side: cash flow. The data showed that Tesla's free cash flow was $441 million at the end of the first quarter, the lowest in nearly two fiscal years and well below analysts' expectations of $3.24 billion.
Under the combined effect of this series of adverse factors, Tesla needs to face a difficult choice: can this price continue to fall?
Tesla's next step: can this price come down?
Tesla's attitude towards the price reduction has become somewhat ambivalent.
In the United States, the tide of price cuts is not over. Just a day before the earnings report, Tesla officially announced that it would cut the price of Model Y and Model 3 models. Among them, the price of Model 3 rear-wheel drive board was reduced by $2,000 to $39,990; The starting prices of both the Model Y long-range and high-performance versions were lowered by $3,000 to $49,990 and $53,990.
According to public information, after entering 2023, Tesla has completed "six consecutive reductions" in the United States, and the prices of the two main models of Model Y and Model 3 are 13% and 11% lower than at the beginning of the year, respectively. According to the financial report, the average price of Tesla's bicycle in the first quarter of this year fell by $4,900 month-on-month to $47,100.
However, in the Chinese market, Tesla has deliberately controlled the price reduction and reduced external expectations. Earlier it was reported that Tesla's Model 3 and Model Y sold in China will closely follow the pace of the US market and start a new round of price cuts this week. However, Tesla responded on April 19 by denying the rumors.
Looking back now, Tesla's move to reduce prices actually has its own helplessness. Affected by the epidemic, global inflation and other factors, the market has shrunk, and Tesla was once plagued by overcapacity. Price cuts are a direct means of promotion and destocking, and Tesla also believes that it can resist the pressure of declining profits.
The Value Research Institute (ID: jiazhiyanjiusuo) believes that to predict when Tesla will stop the price reduction, it is mainly considered from two aspects: one is whether the task of reducing inventory has been completed, and the other is whether the profit decline exceeds the acceptable limit.
Regarding the latter, the outside world is still difficult to conclusive; However, the answer to this former question seems to have been found. From the timeline, Tesla's backlog of inventory in the first quarter of this year was mainly produced in the third to fourth quarters of last year, that is, the capacity expanded after the upgrade of the Shanghai Gigafactory in August last year.
In the fourth quarter of last year, the lead time of Tesla Model 3 and Model Y was shortened to 1-4 weeks; The fact that the Model did not extend when the first round of price cuts was launched in China in January this year shows that Tesla has abundant inventory and production capacity. Haitong Securities even pointed out in the research report that Tesla has been oversupplied for three consecutive quarters.
However, after a quarter of price reductions, inventory levels are believed to have declined. The newly upgraded production line and supply chain are also in place, and Tesla's production plan is expected to return to normal. Musk also said on the earnings call that Tesla's orders exceed production, and the time has come for Tesla to sell cars in more markets around the world, and will increase the scale of deliveries as much as possible.
From this perspective, at least one of Tesla's two major goals of price reduction has been achieved, and now is the time to press the pause button.
However, once Pandora's box is opened, it is not so easy to close. The price reduction wave initiated by Tesla has spread around the world, major car companies have been involved, and Tesla, as the initiator, is difficult to leave instantly.
Taking the Chinese market as an example, from new automakers to traditional car companies, from new energy vehicles to fuel vehicles, the tide of price reductions is rising wave after wave. There are voices of support and opposition from car companies trapped in it, and everyone is wrapped up in it, and they can't help themselves.
In April alone, car companies such as BYD, Changan Deep Blue, Geely, Dongfeng, SAIC-GM, and Chery New Energy joined the price reduction industry. Among them, BYD, which has the largest price reduction, has a maximum discount of 31,000 yuan for its seal series models, and the official price has dropped to 200,000 yuan. The price reduction of many models under Geely Rui Blue and Changan Deep Blue is also close to 10%, and nine-fold discount has become standard.
The current situation is that those car companies that responded to Tesla's call to join the army of price cuts are more ruthless than the other, and have also brought real order growth. If Tesla suddenly turns around at this time, or even goes against the market to raise prices, it is unknown whether consumers will pay for its brand premium under the attack of peers. It's easy to drive the trend, it's much harder to go against the trend.
According to Musk, Tesla will still "continue to adjust prices" and even release the boast of "selling cars at zero profit". Musk is naturally accustomed to harsh words, but in the case of a price war sweeping the entire industry, Tesla seems to be able to bite the bullet first and sacrifice profits for scale.
The earnings report is clearly written in black and white, profits have plummeted, cash flow is urgent, and price wars are unsustainable. The car market is a mess, the cycle of price reduction-sales increase-profit decline, Tesla needs more time to disassemble. In order to divert attention from the outside world, Musk came up with an old trick - painting cakes, and one painting is a tant.
Reconstructing Tesla: Can the three side hustles provoke the beam?
The 2023 Shanghai International Auto Show is in full swing, but Tesla, the boss of new energy, has disappeared. In response to the absence from the Shanghai Auto Show, a Tesla spokesperson said that "Tesla does not classify itself as a car company" and emphasized the company's attention to AI, energy storage, autonomous driving and other businesses.
In the face of analysts' encirclement and blockage in the earnings call, Musk also transferred firepower by "drawing a pie", and energy storage, autonomous driving, and electric trucks were the three businesses he mentioned the most.
So how are these businesses going? At this stage, it can only be said that progress has been rapid, but the actual contribution is limited.
Data show that Tesla's energy business revenue in the first quarter was $1.53 billion, a year-on-year increase of 148%. Last quarter, its energy storage system deployment was 3.9GWh, up 360% year-on-year. The growth rate of the energy storage business is certainly remarkable, but it is difficult to provoke a major beam in Tesla's revenue map.
The Semi electric truck, which began delivery in December last year, has a more turbulent development history. As the industry's first electric truck equipped with a 1000V power system, Tesla Semi has full expectations before its launch, and has proposed an annual production target of 50,000 units in 2023. However, just 4 months after delivery, Tesla voluntarily applied to the National Highway Traffic Safety Administration to recall the first 35 Semi electric trucks.
The reason for the recall is that the electronic parking brake valve module is defective, which is easy to increase crashes and rollover accidents. At present, PepsiCo, Walmart, Anheuser-Busch and other companies are all signed customers of Tesla Semi, and the first two companies have ordered more than 100 vehicles, and it is not clear which customers are involved in the recall of vehicles. The only certainty is that the Semi, which was released 5 years later than originally planned, is still technically difficult to achieve perfection.
Like Semi, Musk's most valued self-driving business is also plagued by accident rates and technical bottlenecks. Since the launch of the FSD subscription service in July 2021, the complaints received by the system and the large-scale recalls induced by the system have emerged one after another, which has become a major "black spot" on Tesla.
Despite the challenges, Musk has no intention of giving up on these businesses. In the earnings call, Musk promised to launch fully autonomous driving technology within this year, while praising the energy storage business for creating the highest gross margin to date, and continued to combine energy storage, internal battery production, Cybertruck platform and FSD as Tesla's "future plan."
The specific approach is also very simple: find loopholes and strengthen shortcomings: the focus of the energy storage business is to increase production capacity, and FSD and Semi are dead-hitting technology.
In mid-April, Tesla's first overseas energy storage super factory announced its location in Shanghai Lingang, and the expansion plan went further. On April 16, Baidu Vice President Chu Ruisong broke the news at the media conference of the intelligent vehicle business department that Tesla FSD is expected to enter the Chinese market this year and next. Around the core battlefield of China, Tesla is weaving a blueprint covering new energy vehicles, autonomous driving, energy storage and other businesses.
Net profit down 24%? Musk is afraid that he will not have time to be sad.
Write at the end
When the energy storage super factory settled in Shanghai, the rumors of Musk's "China trip" became more and more true. However, due to the delay of the SpaceX "Starship" launch plan, the legendary itinerary is regenerated, and Musk's tenth trip to China is unknown.
Nevertheless, at a time when the international situation is changing, Tesla's accelerated embrace of China's supply chain and China's consumer market has won Musk's recognition. Tesla's influence on China's automotive industry has also expanded over time.
The first-quarter earnings report is indeed not perfect, but it is only an episode on Tesla's way forward. Compared with the worst stage of last year's market, Tesla's stock price has recovered to the $180-200 range, and the recent trend is relatively stable. A momentary blow will not really shake its foundations.
For Musk, there are many things to do now, but the idea is clear: increasing production capacity, promoting self-driving technology research and development, developing businesses such as energy storage and electric trucks, all of which are in order.
Unburdened, Tesla only needs to follow the previously formulated route and do the above work, and the prospect is always worth looking forward to.